The vast majority of Gulf trade is done in dollars, but countries like India and China are increasingly seeking to pay in local currencies for several reasons such as lowering transaction costs.
UAE Foreign Trade Minister Thani Al-Zeyoudi told Reuters on Thursday that the UAE is in an early stage of talks with India to deal in non-oil commodities in Indian rupees.
The UAE signed a wide-ranging free trade agreement last year with India, which like China is one of the largest trading partners of the oil and gas-producing Gulf states whose currencies are mostly pegged to the dollar.
Discussions are in their early stages
In response to a question by Reuters whether trade in rupees with India was up for discussion, Al-Zeyoudi said, “Yes, we are in discussion with the Indians.” He added that the talks are related to non-oil commodities.
“It (discussions) is in its early stages,” he said in an interview on the sidelines of the World Economic Forum in Davos.
The trade agreement between the UAE and India aims to increase the volume of bilateral non-oil trade to $100 billion in the next five years.
The minister said other countries, including China, also raised the issue of settling non-oil trade payments in local currencies, but the discussions had not reached any advanced stage.
“We have to be realistic.”
The vast majority of Gulf trade takes place in dollars, but countries such as India and China are increasingly seeking to pay in local currencies for several reasons such as lowering transaction costs.
“We have to be realistic, we plan our budgets on the basis of the dollar, so this is not a step that is taken overnight… There is a discussion, not only with India, but we are managing it in a way that does not conflict with the general interests of the nation,” Al-Zeyoudi said.
He added that any progress in the discussions should make sense for all the countries involved, and for the UAE, it should add value to the growth of its economy.
The UAE indicated that it is increasingly looking in its trade relations to Asia, while its basic security and investment relations focus on the West, as the Arab Gulf states establish long-term strategic partnerships, especially with the United States.
Al-Zeyoudi said that after concluding a trade agreement with India and Indonesia, an agreement with Cambodia is expected to be concluded in the first quarter.
The Chinese president visited Saudi Arabia in December, when he participated in a Gulf Arab summit and called for dealing in oil trade in the yuan as Beijing seeks to establish its currency internationally.
The Saudi finance minister said this week that the kingdom, the world’s largest oil exporter and largest Arab economy, would be open to trading in other currencies besides the dollar.
